Editors' Note: This is the transcript version of the podcast we posted last Wednesday. Please note that due to time and audio constraints, transcription may not be perfect. We encourage you to listen to the podcast embedded below, if you need any clarification. Enjoy!
Rena Sherbill: Hi, again everybody. Welcome back to the show. It's great to have you listening with us. As always, super, super happy and grateful that today's guest is Alan Brochstein, who followers of this podcast and the cannabis industry know as a stalwart of the industry one of the founding members of the cannabis investing community at 420 Investor, at New Cannabis Ventures. Alan has been on the podcast many times before. He unfortunately had an accident a few months ago that he talks about today.
I know that this audience joins me in wishing Alan the absolute very best. His kindness and generosity, both as a human, but also as a purveyor of really strong cannabis investing insights, I know that we all appreciate him. I know I certainly do and I'm always really happy to talk to him and that he shares his time so generously with us and he has always been a really beloved member of the Seeking Alpha family as well. So really happy to have Alan on today and I hope you share in my wishes to him to continue getting well. Hope everyone enjoys this conversation.
So Alan, welcome back to the Cannabis Investing Podcast. I know a lot of people, including myself, we're really happy to see you back just as a human being Alan Brochstein back in our, cameras back in our podcast, back in our email inboxes, but just nice to see you as a human being. I know that you survived a pretty horrific event. So it's just great to have you back on the show, but it's great to see you just doing well again.
Alan Brochstein: Well, thank you. I really appreciate the opportunity to talk to the audience today and to you, and I'm wearing a mask only because my bike accident knocked out my teeth and I don't -- it's very distracting in looking. So, I know, this is a little distract, a little distracting as well, but it's better than looking at my empty mouth and that, so thank you.
RS: Thank you. And ultimately I think the best, the best scenario is the fact that you're able to join us again and talk and, you know, share your insights. And I know that when we heard of your bike accent, I'll speak for the community of cannabis investors. You know, I think a lot of people were worried and concerned and I, and so I know that a lot of people are happy to see you back and getting stronger every day. So we're all -- we continue to root for you and continue to appreciate your place in our community. I know I do and it's always, it's always a pleasure and a joy getting to talk to you over the years. So, thanks for making the time and in a crazy time I imagine.
AB: Yes, it's less crazy for me now than it was right when it happened, but I appreciate the cannabis community. There a lot of people who reached out to us and wanted to help financially and my son and my business partner, Joel set up a GoFundMe and it was very generously contributed to, and so I'm very grateful for that. And more, perhaps more importantly, I received a lot of communication, very positive and I know that tragedies like mine scare people that it could happen to them.
And so everybody wants me to get better for maybe a selfish reason, but I felt like a lot of it was really because they care about me and my subscribers at 420 Investors, our clients and kind of interest too, everybody's been very supportive and I appreciate that.
RS: Yes, absolutely. Yes, I think these things have a way of clarifying things for our own lives, but also, you know, what an impression people can make in our lives, like we know each other mostly through work, but obviously it's a big shock when you hear something happens to somebody that you even care about in a professional setting. So I'm happy to hear that good news continues to roll in about that, and you know the power of community. It's always inspiring to hear about and be a part of. So it's nice to hear.
AB: Yes, it's really helped me recover. And so I want to tell the audience basically what happened to me if they don't know, but it was April 15th Good Friday and also my 32nd anniversary and we had plans for dinner that night, and I went for a bike ride and didn't come home. And what happened to me was, a lady claims she was having a diabetic attack, hit me on my bike while I was in the bike lane.
And I had no idea and my brain was pretty dead for about a month. And so, right now, I am still recovering. I go to therapy pretty extensively and I'm learning to walk, for example, relearning to walk, and but I'm much better and my brain seems to be just back to where it was and we're going to find out soon exactly. But that's really the story and you know it almost killed me, but it left me feeling happier than I've ever been.
RS: Well, it's amazing to hear. It's amazing to hear and really glad to hear that such a horrific thing is turning better and you're improving. So has this affected kind of how you approach work, about how you approach investing? Has this kind of changed anything in terms of how you approach those kinds of things just from kind of like a bigger picture?
AB: No, not really, and I think if anything I'm almost back to a 100% of what I was doing before and thank you to my partner, Joel, and to the other workers at New Cannabis Ventures, that place ran fine without me for, literally for two months. And so I'm back to doing almost everything I was doing there.
The good news is, I thought they needed all my blood and oxygen to exist. In fact, they did well without any of it. And even my subscribers, we're in a bear market and as a matter of fact, the Global Cannabis Stock Index on June 30th, it closed at an all-time low. And this is a scenario that's usually not good for my 420 Investor membership number, but I didn't lose that many members.
A lot of people, they don't want to quit if I'm about to die, but they seemed to be appreciating my recovery. And I can tell you, you can look at my trading journal and my model portfolios were up. All of them were up 10% last week or more, 10% to 11%. And I think off the top of my head, I think I'm at 30, I forgot the exact number, but 27%, maybe month-to-date, the index was up 9%, and up like three times as much.
And so I think that, you asked about my changes and no I'm not changing my investment outlook or anything, but I think what happened was the market went into a complete meltdown and it was still melting down. But when I got my brain back and I wanted to be really aggressive, I wrote a New Cannabis Ventures about it.
We don't always say if we're bullish and we never say we're bearish. But we wrote a couple of times about how we may be near the end of the bear market, which I believe we are. And I would say that the -- this not my dime, but I had the time to really think thoroughly and wait for the right timing. It's showing up in my model portfolios of 420 Investors.
RS: Yes, it's not an easy, I would say the past like a year plus has not been an easy time to run a cannabis service because there's just so much bearishness happening and investors are so pessimistic I think, or definitely not that optimistic on things. And it's hard to keep telling them why to be bullish when it's just -- the sector is just doing some times.
AB: Yes, obviously stupid right?
RS: Right? Like what are you trying to sell me? But, talk about kind of like what you're feeling about, I mean, I know last time you were on, you were talking about the importance of the catalyst that was New Jersey, New York coming online.
AB: Yes, I saw that.
AB: And I still think that that's important and that people, what I think has happened, and if you look at the ancillary, which is down the most and the numbers there have been gone from sky high to looking like death. And we're talking about a big sector that happens, it's actually 41% of the index now. And all these stocks that are in the index trade on the NASDAQ and New York [ph] stock exchange, their investors tend to be people that can't buy OTC stocks and so they're, and the problem for the ancillary is that the numbers looked bad.
And I think more importantly, these people that want to sell, because, no cannabis isn't going be great in their minds, they don't have anybody to sell to, they're all trying to sell and there's no new people showing up. In fact, one of the things that was positive last year was we were seeing new institutional buyers.
Remember when the Democrats won, people thought that we were going move towards legalization, which proved to be incorrect. And I think, if you look at the market right now, there is a lot of pessimism. And my view is that this contraction in the number of buyers can, you know, with the increased pressure on the stocks has left people in a really bad position and they just want to sell, they don't care any longer about the price.
And I think things like we said, with New York, New Jersey, Illinois, just got some dispensaries after being too short for a long time, these are really going to move the needle. The news in California about temporarily the cultivation tax could help that market, which is the biggest legal market, but it's still very heavily illegal there as well, you know, the illicit market.
And there are other things going on. We have New Mexico which legalized. It's not that big of a deal, but Virginia, we have Connecticut coming. It's -- things are really good. And I think, you know, what I've written about, what I believe is going to happen is the future is going to look brighter and these stocks are really cheap. And, you know, is it all going to happen right away, like it's been in July? I don't think so and the July move seems to be the CAOA related, I don't think that thing is going to pass, but we can talk more about that later.
RS: Yes. I mean, my sense on that kind of like rally of the last week, based on the promise of this bill, it seems to me like another fleeting catalyst based on just kind of temporary headlines.
AB: Let me step back from that a little bit, because I've been following this market for now almost for nine years. And I think, you know, this is how rallies do start and I think that a lot of people thought that bulls were buying. I don't argue, we wrote about this today. It was less about bulls buying than bears covering. And there's been a large community of people that have been short the market, they see what's going on in Canada. They see... they think it's smart and shorted. I say well, maybe it was [indiscernible] market, but is it smart? I doubt it. And I think that -- I try to keep in my mind how volatile the sector can be and it seems like we're way down right now. And, you know, how do you get started doesn't necessarily matter.
It's these things that we were just talking about, these new states legalizing and California's tax alleviating, that could be enough to really drive a good long-term. And so, nobody really thinks that CAOA is going to pass. I don't think. Maybe the people submitting it do, I don't know. But I don't -- I've seen a lot of money made with cannabis being federally legal, and I think it's going to remain federally legal, and I don't think that many people are going to sell when they find out. And so that's my view on that.
RS: So it's interesting. So you feel like a rally can be stitched together, even if the news that it's based off of is not exactly what's being promised or even if it's like a short term, what's the word I'm looking for? Intermittent catalyst, right? That it's not long lasting. So you -- even notwithstanding that they can be stitched together to form like a long lasting rally. Is that because, is that because the underlying sector is strong, you think, and they just need…
AB: I think the prices are so low and we, you know, we've been seeing some problems. You and I talked about this in January, some of the slow downs and delays and all that, but that's not a permanent problem. And the COVID effect, I mean, the 2020 numbers now look like they were boosted by the stay at home scenario that was going on. And so I think a bright future is ahead and I think the prices are very low. And I think that a lot of people think that the market is up because people think we're about to legalize. I don't think that's really what's going on. I think that helped get it started, but I don't think there's really that many people that are betting their life that we're about to legalize. That would be stupid. And if they're right, well, it would be great.
Now I will tell you something good that can happen. In our piece today and New Cannabis Ventures our newsletter, we wrote about plan which allow the MSOs to be on a major US Exchange. We talked about safe banking, which I don't think that thing's that big, but passage would be good, but not great in my opinion. And we talked about the other bill, which is forget it, but there are some bills that could be passed when they start talking.
And by the way, the Senate has never spoken on cannabis. It's been illegal since about the thirties and you know they just don't talk about it. Well, now they're going talk about it. They're not in the pass legalization in my opinion, but we may get one of these other bills passing, which would allow the exchanges to trade with these guys, that's a game changer for our industry. Because just really struggle people like cannabis companies, but oh, they're on the OTC Center in Canada, never mind.
And I think I can talk about this now. I've been tracking since my brain came back, I've been tracking for about, I think 10, let's see 11 or 12 MSOs, the top ones. Plus I have role in there as well. And when I look at these MSOs, I look at the 2023 numbers, I'm looking at the EBITDA margins as they're trading at just to keep track, you know, projected EBITDA margin, I'm looking at the 2023 sales growth and 2023 EBIT growth. And the numbers are very big still, even though they've been coming down and the valuations are what I really look at. And the median of these dozen companies is just 1.6 times 2023 sales on an enterprise value basis. That's low.
And you know, we were talking about nine times, 10 times a while ago. It's way down. And compared to EBITDA, now I think there is potentially some pressure on certain names, but there's also some names that seem pretty low. They tend be retail focused, but we're talking about just five and a half times 2023 EBITDA.
RS: That's way down.
AB: When we look at it it's way down. So when you're at a quarter of the valuations on these two, the ratio, now not all companies are the same when I look at this. And you know, I know I said last time it surely seemed expensive. It still seems expensive. It's probably gone down less since January and yes year-to-date it's down at least 10. It's right near its 150 day moving average. So I want to just tell you, I don't get it. I'm not going to say it's wrong, but I don't understand why it's happened. And so I'm working on trying to understand why it's happening.
Sure these trades at, let's see if I can do that math, a 60% premium to the group. It's the highest. That's on enterprise value to sales and it's the same thing about 60% higher adjusted EBITDA margin. Not margin, but EBITDA. And so, I'm avoiding it still. I'll just share that with your listeners and so far avoiding it hasn't helped me, I don't think. But I will say this, I have positions in AYR (OTCQX:AYRWF) and they trade at the low end very low.
And I just want to share what I'm looking at. And I think I can, if you want, I can tell you why I think they're trading mix, but both of them, they're not top tier, they're both tier 2, I consider. And I think that's part of the problem and they trade at 0.9 times sales, EV sales, and that's including all their debt and that AYR and they trade at three times adjusted EBITDA, so a huge discount.
I'm just a believer that those companies can do well over time and should not trade at that big a discount. I also think Columbia Care (OTCQX:CCHWF) is cheap and your listeners are probably aware that Columbia Care is being acquired by Cresco (OTCQX:CRLBF), and that deal is supposed to close from what I can tell late Q4, maybe 2023. Also, I would, so that I don't include this one, but Goodness Growth is being acquired by Verano. I have no position of Verano (OTCQX:VRNOF), and I'll talk about that more in a moment, but I'm - I like Verano and in the past I've told you last time why I sold it.
There were a lot of things going on and I'm watching that one, but both those stocks got out to like 15% discount to the price implied by the deal, which is way low and the Goodness Growth one, especially because that deal is supposed to close very soon, like this month or September, and Columbia Care was out there too. I bought Columbia Care when it was that cheap to Cresco. I had a lot of Cresco. I did the swap and I just sold the Cresco. I like Cresco and I love the merger, but I own Cresco. And at this -- it's inside of 10%, I think.
The other thing to look out for, in my opinion, like I said a few minutes ago is be careful with the margins. And so, overall for this group of 12, the adjusted EBITDA margin on a medium basis is just below 30%, which I can live with that, but I'm aware that over time we may see more and more competition because we already have. And so I'm looking at the ones that are high and I want to pull those out truly at 37%, that's a pretty big premium. The highest is Verano at 41%. I just talked to management about their margins and they have a good reason.
Like I know they're big in Florida and Florida is vertically innovate with higher gross margins and higher adjusted EBITDA margins. But as these two companies spread, that's going to go down. So I think the world is too high on Verano on the - that's the analyst assumption, 41% margin in 2023, that's 35% higher than the median. And it makes little sense to me, I've talked to them about it, and they didn't say this to be really clear, but I get the idea that they may provide guidance to bring it down. And if that happens, they're going to kill the stock.
Now the good news for their investors I think is that the stock trades, it seems the way the stock is priced seems to factor in a lower margin. It only trades at 4.7 times and just, you just said, it's a 20% discount basically to the median. And I think for such a high margin, just saying the margin is too high, we're not going to pay that margin. I like truly even Verano. So I want to be very clear about that, but I'm looking at their multiples as their margins as being so high and I'm a little worried about that. And their valuations on a sales basis are still above average. I like -- the only name that I don't like right now, like I would say don't buy it, is Purely and it's just because the valuation is just way out a whack.
And so a little higher valuation didn't stopped me from investing in GTI (OTCQX:GTBIF), which I didn't own that when we talked in January, but unfortunately I bought it in June at around 11. Well, that doesn't seem so bad right now, but when it was below eight, it felt pretty stupid. And I was like, wow, that part hurt me. But it was really for full company, which I think it is, it was beaten down and it's still. If you look at it now, I've long said that Cresco looks like a better deal than GTI. Well, now I have to say Cresco with Columbia Care looks like a better deal than GTI, but you do a merger there's always risk and I think GTI looks fine now.
RS: So you're bullish on that merger, the proposed merger between Columbia Care and Cresco?
AB: Yes. Let me say it in plain English. So Columbia Care, you had a management inferiority problem, and I'm not saying that like their, the way they are personally, I'm just saying the way they came across was inferior. They were all selling or certainly Nick and his partner that established the place, they were selling like every week and it looked bad and their operations have suffered. I think that the company, if I had to guess, just tried to expand too quickly and they weren't really focused on margins as well as others. And so, I do think that Cresco's management can take their excellent assets at Columbia Care and do better with them than Columbia Care did. And maybe it's just being you know the top tier versus second tier. I don't know.
I have a lot of respect for Cresco and I think they're getting some great assets and a great job in Illinois and Pennsylvania. And I think they're going to do the New York thing. There's a shuffle going on there, because they can only keep one of those licenses and they get to New Jersey, they get Virginia. And Dallas, Virginia was one of the reasons I used to like Columbia Care. I still think it's a good thing. They have two of the licenses there. And so Virginia's kind of slow right now, but it's going to go legal and it's going to be a great state, I think. And so, yes I do like that merger.
RS: And what are your thoughts? I know you write about this a little bit about your positions in the Canadian stocks. And we had Alan Sumler on a couple of weeks ago talking about how he likes Canadian stocks and why he likes them. What are your -- and I know you talked a little bit about the ancillary and I'm wondering if that comes into play, some of that reasoning comes into play with the Canadian stocks?
AB: So I looked at a chart for you, for you and your audience today. I feel like the LPs have been slaughtered. Now this is coming -- you're hearing this from a guy who thought they were too expensive, so it's yes, I was right. But I want to make sure I don't keep saying bad things about them. So, number one, I came out when I had no position on Canopy Growth (NASDAQ:CGC) and told the world that this was a good opportunity. And then I actually added it to all my model portfolios. And it kept dropping every day until Thursday, a week ago. And that was when it bottomed and it ran up a lot. I've sold some, but I still have a position there.
And, right now the only name, that I'm telling subscribers that I just can't get behind is Tilray (NASDAQ:TLRY), but I don't want them to be shortened or anything. I just -- I don't feel very good about Tilray and, but I have felt good wrongly about some of the smaller LPs that I thought were on the right path and their stocks don't trade much volume and they just go down. And what I prepared for you, let me share this, was I don't know if I can, oh, sorry. I'm looking in the wrong place. There we go. I've got to make it bigger.
So I ran a chart from February 9th, 2021, so about 18 months ago, not quite, and I have on it the leading LPs in either sales or market cap. I hope that this is a complete universe. I don't want to be right off, I assume, but looking at Aurora, after that the Aurora (NASDAQ:ACB), Canopy Growth, Cronos (CRON), HEXO, OrganiGram (NASDAQ:OGI), which I really like, Tilray, Village Farms (VFF), Pure Sunfarms. Looking at those seven companies, the returns over the last almost 18-months, the best one is OrganiGram, which I like. It's down 76%. That's the best one.
The worst one is HEXO. It is down 98%. I'm like, wow! Now I think, let me just give a shout out to Tilray. I appreciate what they're trying to do with HEXO and I think if they can get away with this, which maybe they'll be able to do, it's a regulatory issue, I think. To buy HEXO because they took -- they got in a convertible stake at a discount and they own half of it now, a little less than half, can they actually buy the whole thing? And I know they have plans to integrate a little bit, but if they buy the whole thing, I think that's a smart move. And I've told my subscribers that I think HEXO has been a problem company as has Tilray, but the two of them together they're going to do well in Canada and maybe beyond.
And so, and then the other name that's down a lot is Canopy, that's 95% in those less than 18-months. And then next is Aurora, which I added recently to, that was another stupid cannabis trader situation I think. Now, I'm not a big fan of Aurora. I don't care for their CEO necessarily. And I don't think the company has achieved what it should have achieved, but they have a great international medical and Canadian medical product.
I think, what I don't like now is, they have a big facility that they're using for craft growing, actually this makes no sense to me. But with that said, the reason the stock plunged and gave us a buy opportunity and it's not up that much yet, it just hasn't gone down anymore, is that they raised equity, through equity they raised capital and the stock plunged on that deal.
And I think people don't realize that having that cash net of debt and a lower cash burn than others is actually a good thing. And I'm waiting to -- I don't have a huge position, but I'm waiting to see if the company kind of changes their strategy at all. I haven't seen anything yet. Maybe that's because I was out for a while, but I'll be listening to their, I guess, their year end in August it should be.
And so to answer your question about Canada, I think there's a long time bear on Canada for a lot of reasons, but mainly the valuations were too high. Some other things happened that kind of surprised me with; I knew that there were problems in Canada, but wow! Did they hurt? And so they still haven't fixed some of them like there's still 10 milligram cap on THC and edibles and that's just dumb, but it is what it is. And so, I think there's things they can do to improve Canada.
I used to say that I like the retailers. I quit saying that, I don't own any. And I thought that was a good idea and it actually was relatively because they're not down that much, but I think now if I were, I am trying to pick the best stocks out there, I think there are some good opportunities in Canada. And what I can tell you right now, I'm at 21% versus they're at 19% of the index roughly, so I'm not making a big bet. I'm making more of a name bet, my four names that I can own -- necessarily which I own.
RS: What's your beef or why the bearishness on Tilray? And I just want to follow up on the point about the Aurora growing Craft cannabis, you feel like that's just not their kind of area of focus?
AB: It's not economical thing to use a big factory like that. So when I heard about that, I was like shocked. I mean, it's okay to be a craft grower, but to use a, one of the largest facilities in the world for craft growing and, I'm saying this, they are not going to make money. But Tilray, well so I've never spoken to Irwin Simon, so when I say, I don't like him, what I mean is that's not, I don't know him personally, but in a former job I have had to assess him and he eventually, got kicked out of me. But I think that the guy was greedy and I don't want to upset him or anybody else, but that was my view of his work again. At Tilray, well so I watched a [indiscernible] then he waited and waited to become a member, an employee there and this whole thing with Tilray, I was not a fan of that deal. And I thought that he was making a mistake buying Tilray.
So these are kind of in the past and now, right now I will say that the company they're overly diversified and I don't think in a smart way, but I could be wrong, but this Breckenridge after the other beer, I don't think that's what cannabis investors want. Is it going to maybe make a better business, but I don't know. The hemp food that came with Tilray and they bought into that. And there's also the [indiscernible] and I don't really see how that -- deal. It's just a no growth business with low margins. So people that look at Tilray, they see a big revenue number, but it's very little cannabis, $55 million out of $152 million, that's all they did last quarter.
Now, Tilray could work. I don't want to mislead, I actually set a target for year out last night for my subscribers at 40% higher, it's 3.50 now and I think it can get to five bucks basically. So should I be bullish on that? No, I don't think so, because I also set targets on Organigram and they're double this year, triple next year. And from now not triple from the doubling. And so I just don't see the returns as being that great. And the guy Simon, he's out there with that 4 billion BS and it's got the analysts some worrying, if he's going to do stupid acquisitions in the U.S.
And I don't like what they and Canopy do, which is try to get people excited over the U.S. It's probably not happening. And if you look deeper, both of those companies have challenges in growth. And so if that doesn't happen, this whole idea of $4 billion in 2024 isn't going to happen. And they're a billion right now not even, so I don't think anybody believes them and it's kind of, so we can talk like that.
RS: And so do you think that they got, you think they're mistaken getting in merging Aphria and Tilray was just getting focused on too many things and not focus on what kind of could really make them stand out in the sector?
AB: Let me say that I followed Tilray from day one and I've been negative always until right now. And when they announced the acquisition of Tilray, they were saying things like, we're going to be a 20% combined market share. Well, no, it fell though. So Tilray was a very good company. I thought that there were some management issues there. And so I thought that they fell for the Tilray pitch and I was very unhappy. I liked Aphria and I liked what they were doing, but I saw some risk to the business and I think they were trying to get around it.
They bought an indoor grower in British Columbia, but then they closed it. And so, now they're, they got the, the big out, semi outdoor, it's a greenhouse facility and they also have, it's a broken post, I forget, but they have a small facility, but the big facility, they closed it. And so I was never a fan of Tilray and I listened to whole talk about it. And I was like, and it's going down, but now I got to tell you, I'm the biggest bear on some of these large cap Canadian names and I own Canopy Growth now and I'm telling you Tilray is spiking and be 40% higher within the year and I know that I could be wrong, it could be 140%, I don't know.
RS: You think it's going to be 40% higher than where it is now, not 40% higher than?
AB: I do. I think that's based so just so your listeners understand, that's based on the Street consensus for adjusted EBITDA has come down and using a 20 times EV probably which could it be 15 maybe. And so that's going to kind of wipe that out, but it could also be 25, I guess. And I don't want to rule out a bull market and in a bull market, people think more bullishly and the valuation ratios can go up a lot. I think Tilray is starting off at too high a evaluation though.
RS: So I think like the consensus we're, that you're telling investors to look for is margin pressure and kind of the valuation around the stocks. And that's really like the most important thing right now to be looking at. Would you agree with that?
AB: Let me say, I think it's a mistake to assume margins are going to go down. I mean, they might, but to actually plan on it, because the reason is a lot of these states have limited competition and it's not going to be like California, which is also limited, but not by the speed by the locals. And am I betting on lower margins? No. Am I saying they could happen? Yes. And so I'm trying to look out for the margins that seem to be too high and trying to understand why and what their sustainability is, but I will tell you, in general, the valuations are low right now. People are overly afraid about margins, about growth and things like that. And I just think it could go the other way and yes, I'm very bullish right now.
RS: It's good stuff Alan. Anything that you want to share that you think we left out before I let you go?
AB: I'm just looking at my list. I think I covered almost everything. Let's go over Canopy Growth. I wrote about it and I think the company is a big failure. And I think that what I've written about is in the past was that I didn't like that the investment in Wana Brands, they're giving way too much money and they may never be able to close it. And then they did another one in California and not as big a deal. So I think that they also are beverage first company on technology and beverages, they are getting better. And they're just, until we get the ability to drink beverages socially, which is not -- it's not going to be at a dispensary, like nobody is going to go in and especially sit there and drink. That's just not fun. It's a regular bar.
When regular bars start selling these kind of drinks, it's going to be good for Canopy Growth and for the others. But so, I have some problems with them, but the main problem from my perspective is they had $4 billion in cash with Constellation. Now they have net debt and I predicted that they were going to have to convert this and wow, was that ugly, but it created pressure on the stock. I mean, they took it down to the lower view or below actually 250 U.S. And I just thought that was a no brainer that the people wanting to buy it, they're happy it's coming at the most shares they can get from the deal and they're actually taking stock.
And so getting rid of this debt is a good thing for, they still have debt. So I don't want to make it sound like it's great. They still have some expensive debt, but it covers their U.S. operations as well. And, but I do think that that the market was just overly negative about this transitional move and I predicted it was going to happen. It took longer and it's at a lower price, but it's over.
And I think that the, the chances of Constellation (NYSE:STZ) buying them, so I'm on the record for saying that I think Aphria will buy Cronos, because I still think that I have no position with Cronos with right now, it's going down less. And I think that their cash is why it's going down less and their cash burn it's gone down too. But so, come up with a cheaper stock than Cronos and if Aphria buys into the big premium of [indiscernible], but I think Constellation is on the path to buy Canopy Growth. And now it's at a much lower dollar price than they've invested, like they could buy the rest of it for a lot less.
RS: And you think Constellation is going to buy Canopy Growth?
AB: I do, I think that, they just stepped up. Then there's a lot of people out there that are telling me that the reason why Canopy Growth was dropping is because Constellation is going to try to buy them even lower. I'm like, no, how can they do that? They would be sued by investors for doing that. I think, I don't know for sure, but I'm not a lawyer, but they could pay 50% above where it's trading right now and it would make that conversion look smart because they got a lot of shares lower and people might be happy for all I know. And Constellation is bleeding right now on Canopy Growth, but I think things are going to get better for Canopy, especially if they can close these U.S. assets, but probably not. Right?
RS: That would definitely be interesting. It's interesting what happens in Canada like after these past few years kind of some missteps in what ends up happening with some of these companies, it's interesting. Not certainly, what I thought I'll speak for myself a few years ago.
AB: Yes. Well, I got to tell you, the only company that I really, really liked among the LPs and like, I'm telling you, I like the price on Canopy Growth, I'm not a big fan of the company and Aurora, I said the same thing. These are more technical or maybe sort of short-term valuation related. I have two other names and one of them is OrganiGram. That's my favorite company. I've written about it a lot.
Beena is, I think she's an appropriate CEO. I don't think she did anything at Supreme that resulted in Canopy buying Supreme (OTCQX:SPRWF). But I think she, I've listened to her and I think she gets it and I see what the company is doing now. That's all fine. And, but the company has moved to third place in market share and it's growing. Now the negative on that is they're selling a lot of commodity flower, but they did that recently selling Quebec, it seems like it was bright. And I will tell you the smartest thing they did seems to have been the acquisition from BAT investment by BATS.
And what I liked about that deal at a much higher price at 3x where it is now, I think, something like that, or maybe 2.5x, but that deal took care of their huge problem, which was their debt and the debt was getting them into trouble and the way their business was running at that time, it looked like the debt could be a big problem.
Well, wipe out the cash from the balance sheet and don't require her to spend any of that cash much. They have a joint venture that they're funding and all of a sudden the stock looks really cheap and oh, by the way, it's trading at tangible book value, which by the way, so is Canopy.
And so, at some point you can't be negative. I think on a company that's trading at tangible value like OrganiGram, yeah, they burnt a little cash, but their EBITDA is positive and they're growing. It looks like a bargain to me. And so that's the one I really like. The fourth one, which I'm not going to name is a risky company in my opinion. Their business model is [indiscernible] and they have some debt. They still have some cash from that debt, but it's going to be rough if that doesn't work out. But I think the company, it's going to work out so I'm taking the risk.
I was talking about Village Farms is my fourth name. And it's hard to pound the table on [indiscernible]. There's definitely problems there. The stock is really cheap, paying way [indiscernible] value and yes, they have some debt and right now they have cash to cover it. Their burn rate has been high. So if I'm wrong and their numbers don't get better, I'm going to be sorry with that position. Not that big, but I think their numbers are going to get better and that their strategy is going to pay off.
And so that's it in Canada and I only want to talk about maybe one more thing and that's REITs and you asked me about OTCQX:NLCP last time, I said I don't want to spend a lot of time on REITs, but when we talked about now its OTC listed. So today I want to call out that I added, IIPR to my focus list. I have 32 names now and I think it got down to like 24, 25. I've been building it. And these are companies that I think are either very attractive because of their valuation of their business, or they're just actively traded. They are and not all actively traded, like HEXO is not on my focuses there. I think IIPR looks really good here.
And I think the market's making a big mistake blowing up this little problem in California. What I say to my subscribers is, the thing in California doesn't hurt them economically much, but it does make them look like idiots forever, mainly that doing a sales lease back with that company, that company has a lot of problems. And I saw when they did it, I said, oh my God, these guys are not informed and it didn't work out. But so, I wanted to talk about the valuation there.
It's very close to tangible book value, and it's still growing a lot in the, and you look at the ratio to free -- the adjusted funds from operations it's about 11 times, which is pretty low for a company that's high yielding. I think, if I don't own it yet to be really clear, I'll have a call with management and I want to listen to their Q2 conference calls, then I'll make up my mind.
But I just wanted to talk about that one, but I really wanted to talk about Chicago Atlantic (NASDAQ:REFI). And I think their symbol is stupid for Cannabis investors. It's REFI, it's good for cannabis companies. They're trying to refinance their expensive debt and replace it with -- it's a mortgage model. And so, but I think for investors, it's a new issue. It came out late last year and it's got a terrible symbol in my opinion, but it's all good after that. And they're very leveraged to Toronto and they have a higher yield and they're trading below book value.
And no, I don't even have it on my focus list, but I'm just, I'm telling my subscribers and I'm telling your listeners that this looks like a great opportunity. These leads now, if you legalize, I'm going to have the backlog, because I think there's going to be too much competition, but these guys are in a great position with the status quo and everybody's treating them like now REFI hasn't gone down as much as like IIPR, but it is down and the business has done nothing but to work. So yes, I think the REITs are interesting now.
RS: Yes. The REITs are something we've been talking about a little bit. Chicago Atlantic is a new one for us to focus on, IIPR do you have any concern about the tenants not paying or kind of the quality of the tenant?
AB: I really don't. So they have a big portfolio. They have a big cash balance. And so could there be something else wrong, perhaps I haven't done the work yet, so I'm not comfortable saying no. And I'm thinking, well, it could be, yes, but I don't think there's a big problem there. And I think that in general, if 90% of it is good, then the stock is price level. And I don't see write-offs as being a big thing. That was a very special case. And the company is having problems, there's a family [ph] problem there. And I want to see is are the leases high and are the lease rates high, it's implied return to IIPR is too high.
And I don't, I can remember, they weren't on my focuses, but I still paid attention because I view them as, I view them still as the most important cannabis industry funder. And you have had guys like Ben Kovler of GTI saying, I hate sale lease backs. Well, you did one of them. So I'm thinking, this is good stuff, but why are the stock expensive, well still good stuff. Stocks are no longer expensive in my view. And I think if we legalize, I'm not going to rethink that because we're going to see a lot of competition and the growth's going to be gone. It's not going to go down, but it's not going to keep going up I think. This non-REIT guy likes REITs. I don't own any, but I do…
RS: Yes, no, it's very much a part of what we've been talking about, the reasons that you mentioned and how you're looking at it and how legalization may thwart those, that kind of optimism. But I think that's a good place to end it in terms of like what we have to look forward to as we sit here today and also more things to think about as things develop and also how to think about some of those developments.
Alan, I'm so pleased and happy to talk to you full stop period, and then happier to talk cannabis stocks and get back into the podcast conversations, but really happy to be not sitting across the table from you, but sitting across the zoom session and talking you again. So I really, really appreciate it and hope to hear better and happier and stronger news the next time we talk, but happy to hear how strong you're getting and how optimistic you are. So it is a pleasure. Thank you. I appreciate it.
AB: Yes, thank you. It was a lot of fun and I thank you to the audience for bearing with my mask.
RS: Absolutely. I think, I think I can speak for them and say, we're happy to see you, mask, no mask.
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